Travelers profit falls 67% on disaster costs

ErikHolm

NEW YORK (MarketWatch) -- Travelers Cos.
TRV, -0.19%
said a rash of severe weather, including August's Hurricane Irene, caused profit to fall 67% to $333 million in the third quarter.

The insurance company incurred $394 million in catastrophe costs after taxes, a five-fold increase from an uneventful quarter last year, and said storms that didn't qualify as major disasters were also significantly higher than the same period a year earlier.

Operating income of $332 million, or 79 cents a share, missed the consensus estimate of analysts surveyed by Thomson Reuters by eight cents.

But the company sounded an optimistic note on pricing, saying a years-long streak of outsized losses from severe weather combined with other factors to provide an impetus to raise rates across all its operating segments, which include both business and consumer lines.

"We are very pleased with our progress to date," Chief Executive Officer Jay Fishman said. "Overall, we have produced three sequential quarters of improving quarter-over-quarter renewal price gains."

The company said the price increases accelerated as the quarter wore on.

While Travelers has often been among the more optimistic insurance companies when discussing its ability to raise prices--especially for business insurance where competition and other factors have caused years of rate declines--the commentary about rate increases will give added fodder to those in the industry who believe the insurance market is finally making a slow turn for the better.

Net written premiums rose 4% to $5.67 billion, helped by the rate increases and a rise in exposures, or the amount insured by existing clients.

Travelers repurchased $375 million shares during the quarter, well behind last year's pace. But Chief Financial Officer Jay Benet said the company expects to buy back $1 billion in the fourth quarter.

Results were also bolstered by $124 million in reserve releases after taxes. That figure was down from $147 million in the same period a year earlier.

Net investment income fell 6% to $561 million, as low interest rates led to the company earning less on its fixed-income portfolio as it reinvested maturing debt.

While the catastrophes dwarf last year's $77 million in third-quarter disaster costs, the losses were still less than this year's second quarter, when a series of massive tornadoes and other severe weather cost the company $1.09 billion after taxes. The three months ending June 30 was the costliest quarter for natural disasters in the company's history, exceeding the $1.01 billion it suffered in the third quarter of 2005 as a result of Hurricanes Katrina and Rita.

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